What “make good” can mean
The NSW Small Business Commission’s glossary defines make good as the lessee’s obligation, when the lease ends, “to ensure that their premises are returned to the condition it was first built, the same condition as at the start of the lease, or some other condition as specified in the lease.” Its examples are repainting and restoring partitions. It notes that shopping centres sometimes use the terms “cold shell” or “warm shell”, where services may have to go back to capped points and hoarding go up when the shopfront is removed.
Its guide says make-good clauses typically ask for the premises back in an empty and neutral state, which is not necessarily how they looked when the lease began, and in some cases for a strip-back to base building (bare shell) condition and redecoration. It also says such clauses often refer disputes over make-good costs to a certified quantity surveyor nominated by the President of the Australian Institute of Quantity Surveyors or another industry body, whose decision on the costs is binding.
In Victoria, the Commission says the make-good clause specifies the condition you must leave the premises in. Its examples of what that can mean are removing the fit-out, repairing damage beyond fair wear and tear, and returning the premises to its condition at the start of the lease. Its tenants’ brochure lists the make-good obligation, and its likely cost, among the things to understand before signing.
The lease, from first day to last
Before signing (NSW)
The NSW guide says it is important to agree make-good provisions before signing. It recommends agreeing in writing, in the lease if possible, which fit-out items can stay and which must be removed, and preparing a condition report on the premises, signed by both parties and possibly with photos, before the lease begins.
Months before the end (Victoria)
Where there are no further options to renew, the Victorian Commission says the landlord must tell you in writing, within 6 to 12 months before the lease expires, whether a renewal will be offered; where there is an option, the landlord must tell you the last date to exercise it at least three months before that date.
Early inspection (Victoria)
It suggests walking through the premises with the landlord or agent before the lease ends, so there is time to remove or repair anything that affects your make-good, and starting the conversation early because the two sides may value your changes differently.
The last day
In NSW, if no extension has been agreed, the guide says that by the end of the lease you must vacate, remove your belongings and make good the premises as the lease sets out. In Victoria, unless the lease says otherwise, a tenant whose lease is not being renewed does not need to give notice before leaving on the last day.
After you leave (Victoria)
Once the lease has ended and you have met all your obligations, the Victorian Commission says the landlord must return your security deposit within 30 days, with any interest earned, and account for that interest.
The Victorian Commission’s first checklist
If you have no detailed record of how the premises looked at the start, the Victorian Commission offers a checklist of common considerations, asking you to note the likely cost of each. It says the list is not exhaustive and will need adapting to your premises. In its order, and in this guide’s words:
- Does the premises need painting?
- If so, does the painting requirement mean the inside walls, the facade, or both?
- Does flooring you installed have to come out?
- Are there outside signs to take down?
- Are any cracked windows yours to repair?
- Do partitions or other installations have to be removed?
- Are there items to hand back in proper working order?
- Does any part of the property need repair because you put in or took out items?
- Does the property need cleaning and all rubbish removed?
And for the final day, its second checklist asks whether all the furniture has been removed, whether all the rubbish has gone, and whether every key or swipe card has been returned to the landlord or agent.
Habits that prevent a make-good dispute
The Victorian Commission’s other advice, in its order:
- Get it in writing if the landlord or agent says no changes are needed, and likewise for any specific jobs they want done.
- Prepare a full inventory of the fit-out and fixtures and share it with the landlord or agent.
- Find out whether you are responsible for what past tenants did, if they transferred the lease or sold the business to you. The Commission says its mediations show make-good gets complicated when a lease has had several tenants.
- Agree with the landlord or agent when essential services will be disconnected, and confirm the date with your electricity, internet, gas and water providers.
- Cross-check your records of rent and outgoings paid with the landlord or agent before you leave.
Doing it, or paying for it
The NSW guide says lessees often agree to pay the lessor instead of doing the make-good themselves, leaving the lessor to carry out the work, and that this is something to negotiate. If the lessee does not do the make-good, it says the lessee will normally be liable for the lessor’s costs. Either way, leave enough time to remove property and restore the premises to the state the lease requires.
If a dispute arises, both commissions offer help. The NSW Small Business Commission provides mediation services. The Victorian Commission says it can help landlords and tenants resolve retail leasing disputes, and that the Victorian Civil and Administrative Tribunal (VCAT) will not usually hear a retail leasing dispute before it has been through the Commission.